Trading for Dummies, Q&A #57 & #58

Extreme Networks, 30-minute Chart

Questions:

1) Why would you be paying attention to this stock on Friday, October 24?
2) Is the trend up or down? Would you be looking to get long or short this stock?
3) Where would you get long/short this stock on Friday, October 24?
4) Where would you put the initial protective stop?
5) When would you stop trading for the day?
6) Where would you exit the position?

Answers:

1) Because it was unusually active, and very volatile.
2) Up. You'd be looking long.
3) Long at 7.83 on a buy stop above the 11:00 down bar.
4) Initial Protective Stop: 7.76. (max. 0.89%)
5) Right after you enter the position or lunchtime, whichever comes first.
6) End of day. Could sell half, carry half, or just close it all at once.

EXTR drew a picture-perfect narrow range bar at 11:00 that provided a practically risk-free entry point. The stock closed at $8.22 giving about a 5% gain on the day for a reward to risk ratio of better than 5:1.

The beauty of entering off of narrow range bars is that you risk next to nothing to take a position. It's like being able to play a hand after putting one chip in the pot when the minimum bet is three chips.

Business Objects, 30-minute Chart

Questions:

1) Why would you be paying attention to this stock on Friday, October 24?
2) Is the trend up or down? Would you be looking to get long or short this stock?
3) Where would you get long/short this stock on Friday, October 24?
4) Where would you put the initial protective stop?
5) When would you stop trading for the day?
6) Where would you exit the position?

Answers:

1) Because it was unusually active, and very volatile.
2) Up. You'd be looking long.
3) Long at 32.05 on a buy stop above the 10:30 inside bar.
4) Initial Protective Stop: 31.59. (max. 1.44%)
5) Right after you enter the position or lunchtime, whichever comes first.
6) End of day. Could sell half, carry half, or just close it all at once.

BOBJ also provided a good entry point off of the 10:30 bar. Risk was a very acceptable 1.44%. The stock closed at $32.90 giving a gain of 2.65% from entry. This wasn't a great gain and the reward to risk ratio was barely 2:1, but I'm not complaining about making money, especially considering that the broad market was very weak (until the last hour) providing a nasty headwind for the longs.

Screen capture of my intraday Watch List:

Previous Entry >>> Trading for Dummies, Q&A #56